World View & Market Commentary. Forest first; Trees second. Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.

Thursday, August 27, 2009

When Barack Obama was running for President, I did hold out some hope. I do view the bad actors in the debt world as the investment banks and think those “financial experts” hold the vast majority of culpability for creating the credit bubble and subsequent crisis.

I do NOT expect the young newlywed couple, with kids and looking for a home, to realize that they are being duped into a loan that is just crazy by historical standards and has pumped up the price to crazy heights as well. I do expect central bankers to know the difference and to act responsibly, a concept that only sounds GULLIBLE in today’s no concept of usury world.

So now that consumer credit is declining, what’s a never ending fiat system to do? Why just up everyone’s credit rating, of course, that way everyone can qualify for credit again!

DALLAS, Aug 26, 2009 /PRNewswire/ -- The improved FICO 08 credit scoring model promises to deliver a 5 to 15 percent increase in borrowers' credit scores. But it’s not helping home buyers. According to Eddie Johansson, president of Credit Security Group, a leading nationwide credit analysis and rescoring firm, that’s because the largest sources of home financing, Fannie Mae and Freddie Mac, have not yet approved it.

“When Fannie and Freddie approve it, it has arrived - but not until then,” he said. Neither organization has provided its schedule or intentions for approving the FICO 08-based credit scores available from two major credit bureaus.

Credit scores help lenders determine whether a mortgage loan is approved and the interest rate offered. In general, the higher the score, the easier it is to get a mortgage loan and the lower the interest rate.

Johansson said his analysis predicts the new model - if approved - will have the most impact on the current refinancing boom and mid-to-higher-end home sales.

Speaking to 150 bank executives at the Independent Bankers Association of Texas Leadership Conference in San Antonio and to banking educators attending the Financial Literacy Summit at the Federal Reserve Bank of Dallas, Johansson said, "If it’s implemented as expected, it is a great opportunity to boost the housing market." Johansson believes the new model will be a more accurate measure of credit risk.

"It takes into account more of the borrower's history and penalizes them less for a single unusual event," he said. It also has more score card levels, allowing finer adjustment of credit scores." He said it will reduce the power of unscrupulous credit collectors too, since a single bad event - reported in error - will have less impact on scores.

FICO 08's developer, Fair Isaac Corporation, predicts it will help lenders reduce default rates on consumer loans 5 to 15 percent and "deliver a 5-15 percent lift for credit shoppers and nonprime consumers." Fannie Mae and Freddie Mac own or guarantee almost 31 million home loans worth about $5.4 trillion, which makes it all the more important that they approve the new score model.

Central Banker’s polite golf clap, clap, clap… TRAP!

So, we change the accounting standards to allow banks to mark to fantasy. We allow banks to hide toxic assets in shell corporations. We allow banks to hold toxic assets off balance sheet (and even loan taxpayer money against it). We allow the ratings agencies to get their income from those they rate. We let banks repackage toxic waste and give it a triple-A rating – again. And now we just fluff up everyone’s credit score in addition to robbing them blind and laundering money through what should be bankrupt companies.

Truly a sick and demented economy, one where the concept of making something or providing a real service to produce an income stream that can be used to service debts just doesn’t matter. Income to debt, the math is going to continue to bite until we get it right.

All I see is graft and corruption. I do not see any signs of health or any signs that we have turned any corner and are now headed in the right direction. We are now locked into a spiral… one where the exponential math needed to create new growth is beyond comprehension and far, far beyond our means to service the debt that’s being created. Thus we grasp at straws, anything really, to keep the never ending growth alive. The system is in trouble, this type of thing feels just like the first time: